KLCI to remain volatile amid US midterm election spillover [WATCH]

KUALA LUMPUR: The benchmark index FTSE Bursa Malaysia KLCI is expected to remain volatile amid geopolitical risks, domestic political uncertainties and inflationary pressures, as a global technology stock sell-off weighs on investor sentiment despite resilient domestic economic fundamentals.

Affin Hwang Investment Bank head of research Loong Chee Wei expects the benchmark index to face continued volatility, with elevated global bond yields and uncertainty surrounding United States policies posing risks to financial markets.

The caution comes after a sharp overnight sell-off on Wall Street spilled over into Asian markets on Friday, amid concerns that the Democratic Party's victory in the US midterm elections could lead to tighter regulatory scrutiny of artificial intelligence (AI) and slow the expansion of data centres.

The Nasdaq fell 5.5 per cent, wiping out about US$3 trillion in market value from S&P 500 companies, while Japan's Nikkei plunged six per cent.

South Korean and Taiwanese benchmark indices also fell more than eight per cent at one point during early trading.

The sell-off was also felt locally, with the KLCI falling as much as 23.53 points, or 1.4 per cent, to 1,612.33 before recovering slightly to 1,613.85 at the noon break on Friday.

Technology stocks recorded the steepest declines among Bursa Malaysia's sectoral indices, reflecting concerns over potentially tighter US regulations on the AI industry.

Loong identified geopolitical developments as a key risk, particularly uncertainty surrounding US government policies on AI and data centres, which could have wider implications for global technology companies and their supply chains.

"This has led to a sharp correction in technology company share prices that have led the global equity market performance this year," he said.

Domestically, investors are also expected to monitor developments ahead of the Melaka state election on November 14.

Nevertheless, Loong said Malaysia's economic and corporate earnings fundamentals remained supportive of the KLCI at current levels, although a sustained rebound would depend on global market sentiment and foreign fund flows.

He described Malaysia as a relative safe haven in the region, citing its position as a net oil and gas exporter, a growing current account surplus supported by services and electrical and electronics (E&E) exports, as well as a strong investment cycle from both foreign and domestic sources.

NON-TECH SECTOR INTEREST?

In contrast, Kenanga Investment Bank head of research Peter Kong expects the benchmark index to edge higher next week, supported by renewed buying interest in non-technology sectors, particularly banking, utilities and healthcare.

"We expect the KLCI to move mildly higher next week," he said, adding that the research house continued to favour technology companies with stronger revenue visibility, including Kelington Group Bhd, UWC Technology Bhd and Frontken Corporation Bhd.

He said sentiment towards technology stocks remained weak amid valuation concerns, although Kenanga did not anticipate a material impact on corporate earnings in 2027 and 2028.

"Data centre related plays however would provide some support as a modest beneficiary on the back of potential slow-down in new approvals in key data centre states in the US," Kong added.

PROJECTIONS TO REMAIN VOLATILE

Affin Hwang has set the highest year-end FBM KLCI target at 1,730 points, followed by Kenanga and MBSB Research at 1,700 points each.

"At this juncture, we view our end-2026 FBM KLCI target of 1,770 points as an optimistic scenario, with a downward bias toward the 1,700-point level," said MBSB Research.

On monetary policy, both Kenanga and Affin Hwang expect Bank Negara Malaysia to raise the overnight policy rate (OPR) by 25 basis points to three per cent in 2027, with Kenanga expecting the adjustment in the first quarter.

Meanwhile, Affin Hwang expects Brent crude oil prices to average between US$80 and US$85 per barrel in 2026 and 2027, while Kenanga said lower crude oil prices would be a key factor in supporting a re-rating of the consumer sector, although prices are expected to remain volatile.

MBSB Research expects Malaysia's economy to grow by 4.6 per cent in 2027, while market consensus points to 6.6 per cent year-on-year earnings growth for FBM KLCI-listed companies.

Overall, while global uncertainties are expected to keep market sentiment cautious, analysts believe Malaysia's resilient economic outlook and positive corporate earnings prospects could provide some stability to the benchmark index in the weeks ahead.